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Wednesday, February 29, 2012

Many people declared the Supreme Court’s decision in ATT Mobility v. Concepcion to be the death of the consumer class action. After all, in Concepcion, the court held that courts cannot invalidate arbitration clauses on grounds of unconscionability merely because those clauses bar a class action. That followed the court’s decision two years earlier in Stolt-Nielsen v. Animal Feeds International, in which the court held that parties to an arbitration agreement cannot be compelled to participate in a class action arbitration unless the arbitration agreement between the parties contemplates such a procedure. So, the reasoning has gone, businesses don’t like class actions, which assert (fairly or unfairly) tremendous economic pressure. Therefore, any rational business will add an arbitration clause to its form agreement or terms of service, including a class action waiver, and consumer class actions will die a silent death. But, like a zombie rising from the dead, a recent decision from the 2nd U.S. Circuit Court of Appeals might revive consumer class actions.

In In re American Express Merchants Litig., the 2nd Circuit was asked to revisit, for the third time, whether an arbitration clause, which included a class action waiver, in American Express’ merchant agreements, was enforceable. On an initial appeal, the 2nd Circuit (per a panel that included then-Judge Sonia Sotamayor) concluded that they were not, but after Stolt-Nielsen, the Supreme Court reversed the case and remanded it for further consideration. The 2nd Circuit held that Stolt-Nielsen did not change anything. Again, the case went to the Supreme Court, and again, in the wake of Concepcion, the court reversed and remanded for further consideration. And, once again, the 2nd Circuit held that nothing had changed.

So, how did the 2nd Circuit reach a decision that seems to fly in the face of recent Supreme Court decisions? The court focused on earlier Supreme Court decisions which held that as a matter of federal substantive arbitration law, if an arbitration clause effectively deprives a plaintiff of its statutory rights, then it is not enforceable. The panel focused on an affidavit submitted by an economist, which estimated the cost to the plaintiff to perform the economic study needed to win a complicated antitrust case. The court concluded that that cost was so significant that no plaintiff would rationally bear it to recover a small amount of money in an individual arbitration. Therefore, in the court’s view, the arbitration clause had the effect of preventing a plaintiff from vindicating its rights under the Sherman Act. The court held that it could not force a class arbitration, but it could invalidate an arbitration clause that had the effect of depriving a plaintiff of a federal statutory right.

If it stands, the 2nd Circuit’s decision seems to provide a roadmap to plaintiffs who want to avoid arbitration clauses and pursue class actions instead. All they have to do is submit a detailed affidavit from a potential expert demonstrating the costs of litigation and show how those costs outweigh any potential recovery. Of course, that need not be the end of the story. A defendant might want to show that the costs are overstated because any study can be used in several proceedings, at no additional cost, meaning that the costs can be spread over many plaintiffs who want to pursue their claims. For example, in the American Express case, Amex might point out that the many plaintiffs can each use the same economist’s report, which will likely focus on the market-wide effects of Amex’s conduct. The cost of the economic study will then be spread over many different members of what would otherwise be a class. The costs then might not seem so out of proportion.

So, to invoke Mark Twain, have reports of the death of consumer class actions been greatly exaggerated? Maybe, if the 2nd Circuit’s decision stands. But, based on the past few years, it seems likely that the Supreme Court will have the last word.

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.

Tuesday, February 14, 2012

Sure, you read that headline and you laugh. But that could be the logical conclusion of a claim pending in the Southern District of California in which PETA has sued SeaWorld, claiming that SeaWorld’s killer whales are “slaves” protected by the 13th Amendment. It is unclear whether the case will survive a motion to dismiss – though I’m willing to lay odds on “no.”

I will not presume to dissect the merits of the case in this limited space (pun intended). However, the notion that animals have civil rights is troubling on several levels. For example, are service animals slaves? There does not seem to be a distinction between them and the whales at SeaWorld, other than someone’s view about the nobility of their respective callings. Indeed, Ingrid Newkirk of PETA has publicly said that PETA’s goal is “total animal liberation.” What about animals being raised for food? Do their “civil rights” prevent them from being killed?

Ultimately, whether or not you are an originalist, it seems hard to argue that anyone has ever understood the rights embodied in the Constitution to apply to animals. Certainly, no one has argued that animals have the right to vote, or to practice religion, or to own a weapon. Instead, the legal means by which we protect animals is through animal cruelty statutes – laws, not constitutional rights. And the rules in those statutes apply to people and are enforced by people. They do not invest rights in animals.

Still, the lawsuit might be a harbinger of things to come. I’m waiting for the day that the dog across the way that barks all night invokes its right to free speech and political protest. I guess I’ll just have to sit down and talk to it about time, place and manner restrictions.

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.

Thursday, June 16, 2011

The U.S. Supreme Court's decision last week in Microsoft v. i4i appears, at least at first blush, to be a complete loss for Microsoft. Microsoft argued that a defendant in a patent infringement action should have to prove patent invalidity by a preponderance of the evidence. The Supreme Court disagreed and held that federal law requires proof by clear and convincing evidence. Microsoft argued that even if the general rule requires clear and convincing evidence, the rule should be modified if the evidence rendering the patent invalid was not before the Patent and Trademark Office when the patent was granted initially. The Supreme Court disagreed and held that the clear and convincing standard still applies. And the court affirmed a jury verdict against Microsoft.

So, yes, Microsoft lost, and the court's 8-0 vote wasn't even close.

At first glance, the decision seems to indicate the court's hostility to invalidity challenges (or at least reaffirms just how difficult it is to succeed on an invalidity challenge). But there is in the court's opinion a small silver lining for Microsoft and other infringement defendants that might just keep the ruling from being a total disaster.

The court, in rejecting Microsoft's argument that a lower standard applies in cases where the evidence of invalidity presented in court was never before the PTO, said, "Simply put, if the PTO did not have all material facts before it, its considered judgment may lose significant force."

Translation (or at least the translation that Microsoft and other defendants should cling to): The standard of proof is the same -- clear and convincing evidence -- but the import of finding evidence that was not before the PTO is arguably more important than it was before. In fact, in some cases, such evidence, on its own, might be the clear and convincing evidence needed to prove a patent invalid.

It remains to be seen, of course, what effect the court's decision will have on future invalidity arguments. Microsoft itself was able to show at the trial against i4i that some information was not before the patent examiner in the case. That, however, did not sway any of the courts that heard the case, including the Supreme Court. Even faced with such evidence, each court held that Microsoft had not proven that the information in question would or should have changed the examiner's decision.

Nonetheless, future infringement defendants would be wise to be mindful of the court's ruling and scour the universe for evidence outside of the PTO's files for evidence that an examiner was unaware of something relevant. Thus, the court's opinion has given Microsoft and other defendants a roadmap to an invalidity challenge, and with that, a small glimmer of hope.

At least, that's what Microsoft will have to tell itself to make the ruling sting a little less.

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.

Monday, March 28, 2011

Copyright owners have the right to exploit, or not exploit, their works largely as they see fit. That right is one of many reasons -- and one of the most interesting -- that Google's proposed settlement with a class of authors and publishers fell through for a second time when Judge Denny Chin rejected a proposed settlement in Authors' Guild v. Google. Chin's decision raises an important question: can a class of copyright holders ever settle a claim under Federal Rule of Civil Procedure 23? Or is Rule 23 fundamentally at odds with a copyright holder's control over its intellectual property?

Under Rule 23, members of a class presumptively participate in the case. In a damages case, they can opt out. In other cases -- typically those involving claims for injunctive relief -- their participation in the class is mandatory. In Google's settlement, mandatory participation, or even mandatory participation after an opt-out period, would have meant that any author or publisher who did not opt out of the case licensed its copyright to Google, at least provisionally. (Under the proposed settlement, class members could exempt their copyrighted works from some types of republication by Google, even after the opt-out period).

Chin, however, held that this arrangement would run afoul of federal copyright law by putting the onus on copyright holders to take some action to prevent their copyrights from being exploited, rather than the normal default under which inaction means that a copyright cannot be exploited.

Chin's decision raises the question of whether any class of copyright holders can ever settle a class action, at least in federal court, where the Federal Rules of Civil Procedure will govern. Certainly, a class could reach a financial settlement for past infringement, because that settlement would not implicate a copyright holder's right to control how its copyright is used. But it seems almost impossible to settle a claim for forward-looking relief.

The problem is that, as with Google's case, a claim that sets ground rules for future use of class members' copyrights necessarily infringes on absent class members' rights to control their intellectual property. In his opinion, Chin suggests that the way around this is an opt-in settlement.

In an opt-in settlement, a copyright holder would decide whether to participate, and if she does not, then her copyright could not be exploited. That is, an opt-in settlement would not alter the baseline rule that a copyright holder's inaction does not permit the exploitation of her rights. Federal law, however, does not contemplate an opt-in settlement. Some state laws, including Pennsylvania law, do permit opt-in settlements. In addition, a few federal laws expressly provide for such a device, such as the Fair Labor Standards Act. The Copyright Act, however, does not.

So, unless Congress amends the Copyright Act, Chin's suggestion of an opt-in settlement might not chart a path to resolving the case.

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.

Friday, March 18, 2011

With the NCAA tournament upon us, we will no doubt see images of coaches' demonstrative reactions to referees’ calls. All of this will take place under an intense microscope of press and public scrutiny, just as it always has. But now, a new dynamic adds to the mix. Members of the press are expected not only to write their articles, but also to "Tweet" interesting tidbits in something approximating real time. However, a lawsuit filed this week highlights the difficulties of doing so.

NBA referee Bill Spooner filed suit this week in the U.S. District Court for the District of Minnesota (also home to Brady v. NFL) against the Associated Press and AP reporter Jon Krawczynski over a Tweet from Krawczynski during an NBA game. During the game, Minnesota Timberwolves coach Kurt Rambis complained about a call that gave the Houston Rockets free throws. After an exchange, Rambis reportedly asked Spooner how the Timberwolves would get the points back. Krawczynski tweeted about Spooner’s response: "Ref Bill Spooner told Rambis he'd 'get it back' after a bad call. Then he made an even worse call on Rockets. That's NBA officiating folks." Spooner denies promising a makeup call.

The case raises two interesting legal issues. First, can what happens on an NBA court can ever be a private matter? Can an NBA referee ever conduct his activities outside of issues of public controversy? Or are major sporting events -- which are, after all, nothing more than a public exhibition -- inherently matters of public concern?

The answer to that question, of course, determines whether a plaintiff must show "actual malice," meaning knowing falsity or reckless disregard for the truth. Spooner claims to conduct his activities "outside of, and uninvolved with, any issues of public controversy."

At first blush, it seems Spooner will have a hard time avoiding the conclusion that the Tweet in question touched on an issue of public concern. In his complaint, Spooner claims the Tweet accused him of making a false call -- a form of game fixing. And, according to Spooner, the issue of game fixing is highly sensitive for NBA referees because the public still remembers Tim Donaghy's admission two years ago that as a referee, he bet on games and made calls that affected the margin of victory. Donaghy pled guilty to federal criminal charges as a result -- surely an issue of public concern.

Spooner's claim that he is a private figure seems fundamentally in tension with his allegations that the influence of the Donaghy affair makes Krawczynski's Tweet particularly sensitive.

The suit also raises a second issue: are defamation standards different for Tweets than for other forms of speech? Twitter is, by its nature, a constrained form of speech. Some might argue that Tweets are inherently less reliable than other forms of communication, and Twitter users understand that to be the case. Certainly, Twitter lends itself to a speak-now-and-ask-questions-later mentality. Those quick hits make it difficult to do proper research, but they also might make it difficult to make a statement knowing its falsity, or even with reckless disregard of the truth.

Thus, while the Twitterverse might not have its own standard, its fundamental nature -- at this time of year, one might say its "madness" -- will be important to evaluating Spooner's suit and other claims of defamatory Tweets.

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.

Monday, March 07, 2011

One might think the U.S. Supreme Court turns to Shakespeare for inspiration about cert petitions about arbitration. That, at least, is one way to read the court's recent decision to wade back into the issue for the fourth time in three years with Stock & Associates v. Citibank, N.A.

In April 2010, the court held in Stolt-Nielsen S.A., et al. v. AnimalFeeds International Corp. that courts cannot impose classwide arbitration if the parties have not agreed to such a remedy. In June, the court held in Rent-a-Center West Inc. v. Jackson that arbitrators can decide that enforceability of a contract, including the arbitration provision, unless the parties agree otherwise. In November, the court heard arguments in AT&T Mobility LLC v. Concepcion, a case about whether and when a state can deem a classaction waiver in an arbitration provision unconscionable. That case will likely be decided before July.

Now, perhaps with "Henry V" in mind, at least four justices have said, "Once more unto the breach."

Last week, the court agreed to decide when participation in litigation impliedly waives the right to invoke an arbitration agreement. Its decision promises to resolve a split among circuits about whether -- and to what extent -- one must show prejudice to demonstrate waiver of an arbitration provision. Some courts have held that to show waiver, a party must show that it was prejudiced by the delay in invoking the arbitration provision. Other courts have held that waiver can result from participation in litigation or other conduct at odds with arbitration, even in the absence of prejudice. Those courts generally examine a list of non-dispositive factors to determine whether or not to find a waiver.

In its petition for certiorari, Stock argues that a rule that does not require prejudice would create certainty to parties to litigation. That argument, however, seems to miss the mark. Cases that do not require a showing of prejudice almost inevitably lack predictability because they consider a series of non-dispositive factors to decide whether or not to find a waiver, and the combination of factors presented will be different in every case. On the other hand, cases that require a showing of prejudice provide something close to a bright-line rule upon which the parties can rely -- if you cannot show prejudice, you still might be subject to arbitration.

The Supreme Court's resolution of this issue will resolve a circuit split and provide useful guidance for anyone seeking to invoke or resist an arbitration provision. At the same time, as issues about arbitration seem to have captured the court's attention, it will be interesting to see whether, and how many more times, the court wades back into the breach of arbitration-related disputes in upcoming terms.

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.

Thursday, February 24, 2011

This week, the U.S. Supreme Court handed down a pair of decisions about federal pre-emption that show how much statutory language matters. The cases are different, and the arguments among justices within each case are different. Together, though, the cases make an important point: When it comes to statutory interpretation, words must be parsed with care.

On Tuesday, the court held in Bruesewitz v. Wyeth LLC that the National Childhood Vaccine Injury Act pre-empts state tort actions claiming that a federally approved vaccine suffered from a defective design. Justice Antonin Scalia’s majority opinion and Justice Sonia Sotomayor’s dissent engage in a grammar-lover’s debate about the proper interpretation of the statute’s pre-emption clause.

The debate focuses on the meaning of the word “if” and the phrase “even though,” the grammatical structure of the pre-emption clause, including the use, structure and placement of the conditional clause introduced by the word “if,” and the difference between “coordinating junctions” and “concessive subordinate clauses.” The majority also cautions against reading too much into the fact that Congress could have written statutory language more tersely, so long as the interpretation gives effect to all the words in the statute.

On Wednesday, the court held in Williamson v. Mazda Motor of America Inc. that the National Traffic and Motor Vehicle Safety Act and Federal Motor Vehicle Safety Standard 208 -- a federal regulation promulgated pursuant to that act -- do not pre-empt state tort actions claiming that cars complying with Standard 208 were defective.

The act contains two potentially conflicting provisions: a pre-emption provision that bars states from adopting any safety standard different from federal standards; and a savings provision that says that compliance with a federal standard does not exempt any person from liability under common law. Although eight justices agreed that the state tort claims at issue could move forward (Justice Elena Kagan did not participate), they had very different rationales.

Justice Stephen G. Breyer’s majority opinion looked at the interrelationship between the savings clause and the pre-emption clause. The opinion explained that the pre-emption provision might bar a tort action but for the savings clause, but the savings clause demonstrates Congress’s intent to exempt tort suits from pre-emption. At the same time, the court concluded that the pre-emption provision nonetheless means that state laws that stand as an obstacle to the execution of federal policy must yield to the act.

The majority devoted the rest of its opinion to whether or not the particular suit would have interfered with the execution of Standard 208. In a concurring opinion, Justice Clarence Thomas took a very different view of the act. According to Thomas, there is no reason to read the pre-emption provision in conjunction with the savings clause. Instead, Thomas made the savings clause the touchstone of his analysis. In his interpretation, the statute says that state law tort suits are not pre-empted, so they are not pre-empted. Nothing more is needed.

These back-to-back decisions both arise in the context of pre-emption. But they also provide a roadmap to interpreting all statutes -- and even many contracts -- based on the text and grammatical structure that was used. And they remind us all too clearly of a simple maxim: Words matter.

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.

Wednesday, January 26, 2011

In the international realm, contractual arbitration is supposed to provide parties a modicum of certainty. They know the forum in which disputes will be heard and the procedural rules that will control. When coupled with a choice of law clause, an agreement to arbitrate should make clear the rules of the road for any future disputes. However, a recent decision from the U.S. District Court for the District of Columbia shows just how shaky that assumption might be.

The case, filed by International Trading and Industrial Investment Company against DynCorp Aerospace, involves a petition to enforce an arbitration award. The arbitration took place in Paris before the International Chamber of Commerce and was decided under Qatari law, and the arbitrator issued an award in favor of International Trading. DynCorp challenged the award, and the Qatari Court of Cassation -- Qatar’s court of last resort -- held that the arbitrator exceeded his power and erred as a matter of Qatari law.

Therefore, under Qatari law, the ICC’s award was not enforceable. Nonetheless, International Trading filed a petition in federal court in Washington, D.C., to enforce the ICC’s award, and the district court held that the ICC’s award should be enforced under U.S. law. In short, the court held that the Federal Arbitration Act and the Convention on Recognition and Enforcement of Foreign Arbitral Awards set forth exclusive bases for refusing to enforce an arbitrator’s award, and the Qatari court’s decision did not fall into one of those categories.

If it stands, the district court’s decision demonstrates an inherent uncertainty to international arbitration and might encourage forum shopping in efforts to enforce an award. Although the initial arbitral process might be relatively certain, enforcement of an arbitral award is left to the vagaries of local courts.

The possibility of conflicting decisions raises significant hurdles. For example, if International Trading enforces its judgment, obtains assets from DynCorp in the United States and repatriates them to Qatar, could DynCorp then sue International Trading in Qatar, arguing that International Trading has no right to the assets under Qatari law? Superficially, it seems unlikely that a Qatari court could undo what has been done here. But that same Qatari court might think that the district court here did just that -- undo a Qatari judicial decision.

Similarly, what happens if a court in a third country is called on to resolve this conflict? For example, what if a decision orders specific performance, replevin, or some other non-pecuniary remedy that has to take place in Germany? If a court in Qatar holds the decision unenforceable but an American court holds it enforceable, what is a German court to do? Should it resolve the dispute between the national courts of two countries? If so, how? And, does the outcome depend on what country’s courts must resolve the dispute? If so, more forum shopping.

There do not seem to be easy answers to these questions -- a product of the international system in which these arbitrations take place. Justice Robert Jackson famously said of the Supreme Court, “We're not last because we're right, we're right because we're last.” As the district court’s decision makes clear, though, one problem with international arbitration is that it is not clear who is last, and therefore it may not be clear who is right, either.

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.

Wednesday, May 05, 2010

Recently, the Supreme Court agreed to hear the State of California’s appeal in Schwarzenegger v. Entertainment Merchants Association, a case which both the district court and the Ninth Circuit invalidated on First Amendment grounds — a California law bars the sale or rental of violent videogames to minors. When it hears the case, the Supreme Court will have to address an existential question about video games: Are they games in video form, or are they something more than that, closer in kind to a movie, a television show, or even a digital short? (The question evokes images, at least for me, of Mike Myers’ Saturday Night Live character Linda Richman saying to the audience, “Video games are neither videos nor games. Discuss.”) Mere games, of course, seem unlikely to be viewed as an “expression” entitled to protection under the First Amendment, while something akin to a movie or other video story most likely would be entitled to such protection.

For anyone who has not played a video game in the last 10 years, the answer to that question might surprise you. Today’s games are not just progressively more difficult challenges with a graphical interface, à la Pac Man or Super Mario Brothers. Instead, for many of today’s games, the emphasis is on creating an alternate universe, and there is either a story arc or a world to explore, if not both. Sometimes, the story is part of a broader multimedia platform. For example, years ago I stayed up nights on end trying to finish a game set in the same universe as the Matrix movies. As I completed various levels, I was rewarded with live-action footage featuring many of the characters in the movies, often filling in gaps that were left unexplained in the movies themselves. Other times, the game offers a universe of its own, and the player either advances the story, or simply resides in and interacts with the alternate universe that the programmer has created. Either way, these games seem to bear many of the hallmarks of artistic expression.

Ultimately, the answer to this question might not be one that California or any other state wants to hear – each game is probably sui generis. The Matrix game to which I devoted so many evenings bears many of the hallmarks of creative expression – a narrative in an alternate universe in which the player advances to conclusion. Other games, such as the ubiquitous Madden football franchise, do not tell a story or create a parallel universe. They simply offer the user a chance to control computer-created athletes in competition. The differences between these two types of game are significant, and they emphasize the importance of considering each video game on its own merit to determine whether it deserves protection under the First Amendment.

The Supreme Court’s answer to what protection the First Amendment offers to video games will be important to the video game industry, but not only to that industry. Indeed, the way that the Court approaches the question, and the factors it uses to determine whether video games are just that or are a protected form of expression, could significantly impact the way other new, or evolving, media obtain protection under the First Amendment. From social networking to smart phone apps to technologies that none of us is using today, the outlets available for possible expression are expanding at a dramatic rate, and the Court’s decision next term could dramatically shape how those media determine what protections the Constitution offers them.

Joshua D. Wolson is a partner in the Litigation Department at Dilworth Paxson. He can be reached at (215) 575-7295 or jwolson@dilworthlaw.com. This posting is for informational purposes only and should not be construed or interpreted as legal advice on any matter.

Monday, February 22, 2010

A federal judge in California recently issued a startling ruling that class counsel in an antitrust class action was not entitled to any fees, even though it pursued the case for years and successfully negotiated a $49 million settlement. In effect, the judge converted the case from a contingent-fee case to a pro bono case, all because of a potential ethical conflict arising from a retainer letter that obligated counsel to seek incentive awards for the named plaintiffs in the event of any recovery in the case.

The issue arose because convincing a person or business to serve as a representative plaintiff in a class action often presents a free rider problem. To wit, if the case is ultimately resolved favorably, either through settlement or trial, every member of the class will benefit. Yet the named plaintiff will have suffered through discovery, including document requests and depositions, while no absent class member will have suffered the same burdens. These can be painful, distracting experiences for an individual, and potentially disruptive to a small business. So a potential class representative could be forgiven for asking, “What’s in it for me?”

The decision, by Judge Manuel Real of the Central District of California, makes clear that law firms might not be forgiven if they answer that question with promises to seek incentive payments for the class representatives. The issue arose when Real granted final approval to a $49 million settlement in an antitrust class action against West Publishing Corp. (owners of BAR/BRI) and Kaplan Inc., alleging that the two companies illegally agreed that Kaplan would stay out of the market for bar study courses. At the same time, Real was also asked to consider whether to award incentive awards to the named class representatives. Under the terms of the named plaintiffs’ retainer agreement, class counsel was obligated to seek incentive awards on a sliding scale – the greater the recovery for the class, the larger the incentive awards, up to a recovery of $10 million for the class. For any recovery above $10 million, the incentive awards remained the same. Real rejected the requested incentive awards.

On appeal, the 9th Circuit noted that the retainer agreement created significant ethical problems for McGuire Woods, which was serving as class counsel. The court of appeals explained that the agreement created a potential conflict between the named plaintiffs – who had a reduced incentive to seek a recovery above $10 million in the case – and the absent class members and that California law prohibits an attorney from recovering fees for a conflicting representation. However, the 9th Circuit did not decide what effect that conflict should have on any fee application.

On remand, Real took the 9th Circuit’s caution very seriously. In fact, he held that McGuire Woods’ failure to secure a waiver of the conflict – and, of course, given that the conflict was with tens of thousands of absent class members, doing so would have been impossible – meant that the firm was not entitled to collect any fees. This is a startling result, particularly under the circumstances: McGuire Woods was not the firm that entered into the retainer agreement; McGuire Woods secured a settlement far greater than the $10 million threshold of the purported conflict; and all requests for incentive fees were submitted to the court and subject to court scrutiny (although the original retainer agreement was not subject to such scrutiny).

Nonetheless, assuming the decision holds up on appeal – and the 9th Circuit’s decision gives no reason to think that it will not – it is a costly result for McGuire Woods, and an vital cautionary tale for anyone else seeking to sign up potential representative plaintiffs.

Joshua D. Wolson is a member of the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com. This posting is for informational purposes only and should not be construed or interpreted as legal advice on any matter.